The growth in India will be driven by increased public spending, higher capacity utilisation rate and uptick in private investment, said its supplement to the Asian Development Outlook (ADO).

While retaining India's growth rate projection for the current and the next fiscal year, Asian Development Bank said economic growth in China will decelerate to 6.6 per cent in 2018 and further to 6.4 per cent in 2019. China's growth rate was 6.9 per cent in 2017.

On India, it said: "In sum, the GDP growth forecast for FY2018 (ending March 2019) is maintained at 7.3 per cent. Growth in FY2019 is expected to rise to 7.6 per cent as measures taken to strengthen the banking system bolster private investment and as benefits kick in from the goods and services tax. Any further increase in oil prices poses a downside risk to growth."

ADB said India is the dominant economy in the South Asia sub-region with its growth gaining momentum at 7.7 per cent in the last quarter ended March of 2017-18, the highest rate of growth since first quarter of 2016-17.

This pushed full-year growth to 6.7 per cent (2017-18), a tad higher than estimated in ADO 2018, largely driven by government spending for both consumption and public administration.

"In the first half of 2018-19, the growth rate is expected to benefit from a low base. Other key drivers of growth include an uptick in public consumption, which is typical before elections, and a recovery in exports following shortages of working capital related to a new goods and services tax," according to the ADO supplement.

In India, the private consumption is expected to grow at a healthy rate as disruption caused by demonetisation in 2016 fades. Capacity utilisation rates are at their highest in 4 years and should provide incentives to firms to invest.

Growth in Asia and the Pacific's developing economies for 2018 and 2019 will remain solid as it continues apace across the region, despite rising tensions between the US and its trading partners.

"South Asia, meanwhile, continues to be the fastest growing sub-region, led by India, whose economy is on track to meet fiscal year 2018 projected growth of 7.3 per cent and further accelerating to 7.6 per cent in 2019, as measures taken to strengthen the banking system and tax reform boost investment," it said further.

Developing Asia is largely on track to meet growth expectations as set out in April in Asian Development Outlook 2018 (ADO 2018), said the report. The regional gross domestic product (GDP) is forecast to expand by 6 per cent in 2018 and 5.9 per cent in 2019, the rate envisaged in April, ADO supplement said.

In April, ADO had said that India's economic growth will rise to 7.3 per cent this fiscal and further to 7.6 per cent in the next financial year, retaining the fastest-growing Asian economy tag, on back of GST and banking reforms.

"Although rising trade tensions remain a concern for the region, protectionist trade measures implemented so far in 2018 have not significantly dented buoyant trade flows to and from developing Asia," said ADB Chief Economist Yasuyuki Sawada.

"Prudent macroeconomic and fiscal policy-making will help economies across the region prepare to respond to external shocks, ensuring that growth in the region remains robust," he said.

ADO has also retained the combined growth forecast for the major industrial economies - the US, the Euro zone and Japan - as growth in the US and the Euro area remains robust.

In Japan, though, unanticipated contraction in the first quarter prompts slight revision of the 2018 growth forecast, it added.

However, ADB said that the rise in protectionist trade measures from the US and countermeasures from China and other countries "poses a clear downside risk to the outlook for developing Asia".

The ADO supplement has factored in the tariffs imposed by July 15.

"The risk of further ratcheting up of protectionist measures could undermine consumer and business confidence and thus developing Asia's growth prospects," ADB said.

On price rise front, ADO has raised the South Asia inflation forecast to 5 per cent from 4.7 per cent, mainly to accommodate an increase in the forecast for India, but kept at 5.1 per cent for 2019.

"The upgrade in the 2018-19 inflation forecast for India from 4.6 per cent to 5 per cent responds to higher oil prices, significant depreciation of the Indian rupee in the past few months, and generous increases announced on 4 July in minimum support prices for summer crops," according to ADB.

For developing Asia, it has revised down inflation projections from 2.9 per cent to 2.8 per cent in 2018 and from 2.9 per cent to 2.7 per cent in 2019 citing domestic factors to help contain inflationary pressures.

"As the US monetary policy normalises, central banks in the region act to spare their currencies' sharp depreciation and to subdue inflation. Further, some governments have reintroduced subsidies to contain the effects of rising food and oil prices."